The last post dealt with an article that stated that big companies can not innovate. In my previous post I argued against this thesis along a few axes and this blog post adds some fuel to the argument. This article is also from the HBR and was written by Ron Ashkenas and can be found here (http://blogs.hbr.org/ashkenas/2012/10/kill-your-business-model-befor.html) the title of the article is "Kill Your Business Model Before it Kills You" or liberally translated as "innovate or die".
Innovate or Die?:
While the US Postal Service is a complex creature to analyze to support a thesis of "innovate or die", the article thankfully provides more examples of companies that missed the innovation boat and subsequently crashed and burned. Kodak is an excellent example of such an enterprise, rather than use their photography expertise to work with or take over digital camera and photo printing they stayed entrenched. Perhaps their shareholders did not want precious cash in hand being diverted to R&D and (ironically, like I said before) their short-sightedness may have cost them future share growth and dividends. This is contrasted with IBM, a colossal firm, that innovated in a big way (selling off its PC unit, switching to services) and ultimately succeeded in a big way, after what I am sure was a bit of a rocky period on the street. Had IBM stayed in its proverbial comfort zone it may have faltered or struggled like HP and Dell do today. The innovated and survived, Kodak did not innovate and have all but officially died.
Does Size Matter?:
IBM has been regarded as big almost as long as it has existed, yet it successfully innovated. CVS was big before it merged with Caremark (also big) and has successfully innovated and continues to do so. There are two simple examples of innovative big companies that have thrived as a result of their innovative endeavors. Apple was down to ~$50 per share when Steve Jobs returned and had several years of tremendous innovations (iPod, iTunes, iPhone, etc) and are now worth over $670 per share a mere 3-4 years later. That kind of growth is incredible, and has landed it a spot in the Fortune 20 for 2012. Staples innovated in its marketing strategies, using the internet and targeted catalogs to drive both top and bottom line growth, Staples is king of the hill while Office Max and Office Depot are but memories. All large companies, those that innovated grew and survived, those that were complacent died.
Tie in to Course Material:
An alternative way to read this article to see changing an established business plan/model as a pivot! Persevere, Pivot, and Perish do not have to be delegated to lean start ups, hypothesis driven management and strategy can be just as valuable to a blue chip multi-national as it is to a 2 man start up operating in someone's garage.
Bottom Line:
Innovate or die; if you do not innovate you do not move forward. A lack of progression is regression in an environment as competitive as business. This is the natural Darwinism of capitalism. Entrepreneurs' creations live and die by their innovation, the solutions to society's problems are born from innovation, after all if the solutions could be found without innovation they would exist already! Embrace innovation, embrace agile thinking and ideas can become solutions, solutions can become start ups, and start ups can becomes successful enterprises.
The tech industry is a huge proponent of this, so much so that any hope for survival is geared around charging premiums for better product performance and lean manufacturing of existing and new products to minimize the impact of growing resource costs. Whether it’s Samsung, LG, Apple to name a few, they drive this industry mantra on each other, forcing out the weak.
ReplyDeleteCars are an example of this: a car from the 80's were heavy, robust, and drove fewer miles to the gallon. This is a contrast to the Toyota I drive that gets 40 miles to the gallon because it is assembled with thin sheet metal to minimize material costs and weight (not cost).
Not only do the cars get better mileage but the sheet metal design (with crumple zones) are actually a lot safer because they can deform in a collision, thus dispersing momentum and kinetic energy. In the old cars the heavy solid steel frames the only thing that could flex/warp/move in a collision was the squishy human that may or may not have been buckled.
DeleteThe gas mileage is a perk but not becoming marinara sauce in a collision is even better.
I also agree that technology companies are probably best positioned to continuously innovate and failure to do so would be a coup de grace for most as the "leap frog" nature of innovation requires perpetual pursuit of advancement.
The sheet metal crumple cars are definitely safer if your light car hits an object, less mass = less kinetic energy. Not so safe if you got hit by a 49 Buick Road Master.
DeleteAlso, sheet metal designs are considered in the planned obsolescence of consumer products.
I am pretty sure the physics of the crumple zones were more so designed to tap into the conservation of momentum on the velocity side instead of the mass side. By crumpling, you end up with a partially inelastic collision which dramatically reduces velocity and subsequently, kinetic energy (since KE is proportional to the square of the velocity).
DeleteThe fact that you basically have to junk the car after a crash is probably a fringe benefit for the makers, but I think the market wants these kinds of cars so makers oblige.
Squishy humans? Umm...nice visuals.
ReplyDeleteInnovation isn't limited to Toyota, although I will always be annoyed that the US dissed Deming in those early days. My Buick SUV has a lot more plastic on it than I realized. In a recent brush with a drunk driver who tried to squeeze between me and an 18-wheeler, I ended up with scrapes and dents down the side of my vehicle. When I got a check for a mere $700 I was incensed. Til a friend pointed out that I only needed to replace pieces of plastic, not the whole quarter section that got hit.
Dave, what do you think are the reasons that some big companies can innovate? As you pointed out in your prior post (and as we all also pointed out), big companies inherently struggle to innovate other than the exceptions like IBM and Apple who push the envelope.
ReplyDeleteIn my opinion it is fear of failure that obstructs innovation more than anything. Big companies have the resources to achieve virtually anything but nobody wants to be the guy that took a risk and lost the company money. If a company is beholden to the shareholders more so than stakeholders then its servitude to the proverbial bottom line creates a fear of jeopardizing those precious earnings per share.
DeleteThis is not to belittle the importance of earnings per share, nor is it an attempt to diminish the importance of shareholders. What this is a candid analysis and outsider opinion of why big companies struggle to innovate. What I find paradoxical about this fear however is that a firm can not move forward with out moving. Any movement has some level of inherent risk and risk is proportional to reward. The potential pay off to shareholders for a well planned, well executed move can far outweigh the perceived risk of failure.
Innovation can be expensive, but it can also be lucrative. When a company reaches "big company" status, the numbers simply scale up, but not this does not undo the relationship between risk and reward. If anything big companies have the ability to absorb losses better. The sooner companies get over their fear of failure the sooner they make forward progress (innovate). If my employer can do it, I do not see why the others can not.